Mutual Funds vs. Stocks

No two things can ever be exactly the same. There is always at least something that one object has that’s different from another, no matter how similar they may be. Even identical twins differences between them, it’s just that they aren’t that noticeable at first glance. Anyways, some people out there wonder what the difference between stocks and mutual funds are, and would love to see a comparison between the two. That’s why I’ve taken the liberty of writing this article, for the benefit of those who do have no idea what they are – interested in knowing what they are? Read this: what really makes them “unique” as compared to one another is the kind of investments you put your money into.

When you say stocks, it usually means that you’re putting it in a singular type of investment only. But with mutual funds, you’re putting it in several kinds, which include a variety of the following: bonds, stocks, and many other money-market investments. That brings up the 2nd fact that separates them from one another, which is the risk involved. Investing in mutual funds means that you’ll be taking a lower risk as compared to stocks, why? Because of the diversification of this particular investment – it just doesn’t stick to one type, but to many. With stocks, expect that you’ll be taking higher risks because it isn’t that diversified.

Having said that, it brings up the 3rd fact that differentiates the two, which is: returns. In the stock market, there’s “belief” or “law” that’s “implemented” here, which goes: the higher the risk, the higher the return. What that means, when applying it for the sake of distinguishing the two mentioned, stocks do tend to fluctuate higher, which could mean larger returns. The 4th deviation between the two types of investment is the “management” their placed under. With mutual funds, your investment is placed under the careful care of professional investment managers. These are the guys making the decisions on your behalf, but do so by investing in “medians” that’ll most likely make a profit.

That in turn lowers the risk you take, not to mention the burden of deciding where to put your cash. Stocks, on the other hand, don’t come with a team of professionals to watch over your investment; you only have yourself to rely on. That can be very risky if you’re new to this kinda business, and lead you into the pits of financial ruin too. 5th and last difference is efficiency – mutual funds have larger sums of money to invest with, usually come hand-in-hand trade-commission free, not to mention the contacts they have at the brokerage, which makes them more efficient.

Now I ask you this: which of the two would you invest in? Well that depends entirely on you, my furry friend. Being a newbie to a place as wild as the money market can be risky given that you don’t know how things works yet, so it’d be best if you’d pool your money in mutual funds. As you make your way up the “ladder”, you might wanna consider placing your cash in individual stocks, which can mean more profit for you, taken that you’ve gained enough experience. Or you could try investing in both, if you’d like.